We speak to credit score expert Paul Ryan to discover what a business credit score is and how you develop, maintain, and use your score.
A business credit score is very similar to a personal credit score. Just like a personal credit score, your business credit score is an official measure of whether your business is likely to repay its credit, loan, or debt. Companies, including Equifax, Dun and Bradstreet, and Experian, create and update these scores based on your business payment history and cash flow. With a good business credit score, you can fund your business growth and operations far more easily.
“Credit score companies look at the business’s payment history. They check if you are paying on time and confirm whether your business might be a little late in paying its credit or, worst case, delinquent. That’s the number one check credit agencies check,” said Paul Ryan, Business Solution Architect, ProSource. “I advise organizations to ensure that any type of credit you use is provided to the credit agencies. These include credit, leases, credit cards, and any other vendors or other payments that may not be applied to a credit score automatically.”
Establishing a line of credit is the most important reason to have a credit score. With a strong line of credit available, a small business can grow quickly and efficiently. This allows you, as the business owner, to take out a business credit card, loan, or even lease an office. These simple everyday transactions become a real challenge without a credit history and a credit score.
“Having a business score also established credibility. Let’s say your business is trying to go after a large contract. We’ll look at how much of a line of credit that organization has available to and so that they’ll be able to service that contract,” noted Ryan.
How do you establish good business credit?
Establishing your business credit score is the first step to business legitimacy. Without a business credit score, your business may not receive the best financing rates, credit card options, and more.
The first step on your road to having a business credit score I setting up your business correctly. You must establish what type of business you are. You could set it up as a sole proprietorship. This is a simple business format where one person is the owner and is usually for small or micro businesses. They are very simple and without a lot of business protections. The next level is having an LLC or Limited liability corporation, and then there is the full-scale corporation.
“To start the business set-up, you need to go to your state’s business set-up website and establish yourself as whatever type of business entity that you want. After filing, as long as it’s approved, the government provides an article of incorporation,” explained Ryan.
Setting up your business
The next step is to reach out to the Internal Revenue Service irs.gov and apply for an EIN or employer identification number. This is a simple process where you just provide the company name, where it’s established, what type of business, and a few other basic details.
Once you get your articles of incorporation and your EIN number, you can go straight to the bank and open up a bank account. Now you just have to pay your bills on time!
“Dun and Bradstreet’s business credit score model rates a company from one to 100. The lowest tier is a credit rate up to 49, which is poor to fair; from 50 to 79 is a good score, then anything from 80 to 100 is fantastic. A lot of creditors will not even look at businesses if they have a credit score below 50,” Ryan noted.
How do you maintain a good or great business credit history? Our top 3 tips
- Make sure that you’re paying your bills on time.
- Check your business credit reports on more than one provider.
- Ensure your business information is documented and correct on all credit report providers.
“It seems so simple, but just keeping track of not only making sure that payments are made, but those payments, especially obviously the ones that are on time, are reported to the credit agencies. Because your business could be paying a lot towards a vendor or several vendors, but that information may not necessarily come back into it in the form of a credit report. A credit report on a business may contain just credit card payments, which is great. However, one of the other important factors as far as a credit score is what’s called a credit mix,” said Ryan.
To start your business credit score journey, access your free Business Credit Risk Class score when you claim your business on Markaaz. You can also access curated financing options through our partners Nav and correct your public-facing business data giving you a better chance to get the financing, business credit cards, and business credit limit you need at the interest rates you, as a small business owner, deserve.
Paul Ryan, Business Solution Architect, ProSource
Paul Ryan is a business solution architect, management consultant, corporate trainer, and author. He is the author of Raise or Repair and Retain a Great Credit Score (available on Amazon).
Paul is, or has been, a volunteer with organizations, including a major south Florida university, Habitat for Humanity, and Junior Achievement, and is a mentor for his alma mater’s business school.